RBI turns to mopping up liquidity
- October 10, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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RBI turns to mopping up liquidity
Subject – Economy
Context – Monetary Policy Committee (MPC) decided to keep the repo rate unchanged and retain the accommodative policy stance.
Concept –
To know about Monetary Policy Committee, please click here.
To know about Accommodative monetary policy, please click here.
To know about Repo Rate, please click here.
Government Securities Acquisition Programme (G-SAP)
- The RBI launched G-SAP to address the concerns of the financial markets on liquidity after the outbreak of the Covid pandemic.
- The G-Sec Acquisition Programme (G-SAP) is basically an unconditional and a structured Open Market Operation (OMO), of a much larger scale and size.
- The word ‘unconditional’ here connotes that RBI has committed upfront that it will buy G-Secs irrespective of the market sentiment.
To know about GSAP, please click here.
Variable Rate Reverse Repo (VRRR)
- The Reserve Bank of India (RBI) had said that it would conduct four variable reverse repo rate (VRRR) auctions of Rs 13 lakh crore in the fortnight beginning August 13 till September 24, to absorb surplus liquidity from the banking system.
- Under the revised liquidity management framework announced on February 6, 2020, the RBI has been conducting 14-day variable rate reverse repo (VRRR) auctions as its main liquidity operation.
- With the commencement of normal liquidity operations, the VRRR, which was temporarily held in abeyance during the pandemic, has been re-introduced since January 15, 2021.
- The quantum of VRRR will increase by Rs 50,000 crore with each auction.
- Markets have adapted and even welcomed the VRRR in view of the higher remuneration it offers relative to the fixed rate overnight reverse repo.